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Weibo IPO Plan Puts These ETFs in Focus

Zacks Equity Research

Chinese e-commerce giants are ready to hit the U.S. stock market this year. After Alibaba – which is planning to file an IPO next month, Weibo is planning an entry into the U.S. exchanges. Weibo – also known as the Chinese version of Twitter (TWTR) – is a Chinese microblogging website.

Having gained huge popularity, Weibo has so far garnered about 129 million monthly active users (as per Bloomberg). Its market penetration can easily be compared to what Twitter boasts for its user base.

Weibo was launched by Chinese Internet company SINA Corp. (SINA) on  August 14, 2009 and currently has a 78% stake in the company, while Alibaba has a minority stake (read: 4 ETFs to Tap on Upcoming Alibaba IPO).

Inside the IPO Move

Weibo seeks to raise $500 million in an initial public offering in the U.S., according to a regulatory filing. Out of the total proceeds, Weibo would use about $250 million to pay back loans to the parent company, Sina. The current valuation of Sina Weibo stands at $5.1 billion, according to the midpoint of analyst estimates.

According to the company's F-1 filing, Weibo recorded $188 million in revenues in 2013, almost quadrupling from the year-ago level. The company also narrowed its net loss from $102 million in 2012 to $38 million in 2013.

Investor Sentiment

Some investors are pinning hopes on Weibo, expecting it to follow Twitter’s footsteps. Twitter saw huge success after making an IPO debut in November and has risen almost twofold since then.

On the other hand, some are viewing it as a possible flop in the making. This group of analysts believes that the hype of microblogging has started to die out in China, prompting SINA to list Weibo on U.S. exchanges.

While the already hot U.S. IPO market helped the following ETFs see busy trading, the recent developments on Weibo should draw further attention. Also, these ETFs are considered safe bets for investors seeking to avoid single stock risk and still intending to take part in the likely upside offered by this microblogging website’s plan to go public.

Global X Social Media Index ETF (SOCL), First Trust US IPO Index Fund (FPX) and Renaissance IPO ETF (IPO) are the ETFs to be considered if investors are interested to play the Weibo IPO.

Among the trio, SOCL offers pure play in the global social media space ruled by the tech biggies like FB, Tencent Holdings (TCEHY) and Linkedin (LNKD) (see: all the Technology ETFs here). Most importantly, Weibo’s parent company Sina Corp. is already there in SOCL taking the fourth spot with 7.67% share.  This fact raises the chance of Weibo’s inclusion to SOCL once it debuts on the U.S. exchange.

In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China and Japan with double-digit exposure each. SOCL has so far amassed $162.9 million in its asset base. The ETF charges 0.65% in fees and expenses and sees good volumes of roughly 200,000 shares a day.

However, other ETFs target the U.S. IPO market. Since FPX focuses on 100 largest and most liquid U.S. IPOs, new companies can find entry into the fund’s holding after trading for a minimum of 100 days (read: Can IPO ETFs Remain Hot in 2014?). Also, this $530.6 million fund offers a diversified exposure to various sectors, while it charges 60 bps in fees a year.

The ETF IPO also provides exposure to the largest and most liquid newly listed companies, as the ticker name suggests. New companies are included to the ETF on a ‘fast entry basis’ on the fifth day of trading.

This $25.0 million fund is still an unpopular option as it made an entry in the ETF world just few months back. It also charges 60 bps in annual fees. From a sector look, technology stocks make up for more than one-fourth share which increases the likelihood of Weibo’s inclusion into the ETF, though the size of the Weibo IPO might prevent it from finding its way into either of these IPO funds.

Bottom Line

While IPO-related ETFs and the exclusively designed social media ETF – SOCL – come first in mind while thinking to tap the Weibo’s planned public offering, some China-driven technology ETFs are also worth a look. These are the Nasdaq China Technology ETF (QQQC), China Technology ETF (CQQQ) and Golden Dragon Halter USX China Portfolio (PGJ).

Since Weibo’s parent company Sina has a sizable exposure in these China-based ETFs, we expect this set of China funds may consider adding Weibo to their portfolio. After all, one should not forget that amid a broad-based China slowdown, only the Internet ETF space held up pretty well and Weibo belongs to that surging sector (read: China Internet ETF: The Best Choice in the Space?).

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